No bank cover under EPCG

Transaction costs for exporters to fall.

Exporters may be spared the trouble of obtaining bank guarantees every time they apply for import licences under specific schemes. The move will reduce exporters' transaction costs, making them more competitive in international markets.

The biggest beneficiary will be exporters who seek duty-free import of capital goods under the export promotion capital goods (EPCG) scheme.

The cost of obtaining bank guarantees for the EPCG scheme is estimated at 2 per cent of the value of duty-free imports allowed under it. In a highly competitive market, a cost reduction even of this magnitude will be a big relief, say trade experts.

Commerce and Industry Minister Kamal Nath is understood to have made up his mind on this issue and has asked his officials to explore an alternative method that could replace the system of obtaining bank guarantees.

The specific schemes that will enjoy this facility are being identified. Nath has also discussed the proposal with Finance Minister P Chidambaram.

An announcement doing away the need for obtaining bank guarantees for export schemes is expected to be made by Nath later this month when he unveils the amended Exim policy for the 2002-07 period.

At present, exporters have to furnish bank guarantees under the EPCG and the advance licence schemes. Export houses, certified by the government, are exempt from the requirement and have to furnish legal undertakings against bank guarantees.

The amended exim Policy will also outline a special package for agriculture exports. "It will be an agriculture-offensive policy," said a highly placed source in the commerce ministry.

An exercise has already been initiated to identify the various agriculture items, whose exports needed to be "assisted" with the help of government schemes.

The amended policy will provide such assistance to agriculture exports that will ensure at the same time that the relevant rules under the World Trade Organisation (WTO) are not flouted. Some of the agriculture items that might receive the proposed assistance from government are cotton, coffee, tea and oilseeds.

The new package is being framed in the background of a recent assessment by the commerce ministry that while a host of incentives are in place for manufactured goods exports, agriculture exports do not enjoy any special schemes. There is also no long-term policy to promote agriculture exports on a sustainable basis.

Ministry officials have argued that the potential for agriculture exports cannot be exploited with an inconsistent policy. The global market for agriculture relies on reliable and regular suppliers.

India has not been a regular exporter of agriculture products. The amended policy's attempt is to create an "assistance system" which helps Indian farmers enter the global markets for their produce on a long-term basis.

Ministry sources also said the package for agriculture and replacing bank guarantees with an easier and less expensive system will be among the two major announcements to be made in the amended policy.

The sources conceded that doing away with bank guarantees will mean a big blow to the banking system, which earns substantial revenue by issuing such instruments. But for exporters, this might be a big relief.